Background Checks: Handle with Care!

A.A. Southern Services, Inc. (Southern Services) provides termite and pest control to residential homeowners. The technicians for Southern Services frequently had access to private homes at times when the homeowners were not present or at times when only a minor child was present. In order to protect its residential customers and reduce the risk of harm, Southern Services routinely requested criminal background checks on all of its technicians who would have access to residential homes. The checks were performed during the initial hiring process and annually thereafter.

Montgomery County Investigative Services, Ltd. (MIS) conducts various types of background checks for its clients. It conducts criminal, civil, traffic and Social Security inquiries, as well as hospital record checks. If requested, MIS will conduct a simple computerized search through a court database for a fixed fee per inquiry, and will provide the client with a summary, along with matching printouts. MIS will also conduct a more thorough investigation ' e.g., going to the courthouse to obtain copies of original documents from the court records, if requested.

Early in March 2002, Robert T. Horne applied for a job at Southern Services. During that interview, Horne was advised that he would have to undergo a background check as part of the employment process. Horne admitted that he had been previously arrested and charged with transporting a handgun and with impersonating a police officer. The second charge resulted in a verdict of not guilty. However, Horne pled guilty to the first charge of transporting a handgun and received probation before judgment.

On March 12, 2002, Horne was hired as a residential pest control technician. The routine background check on Horne was initiated on March 29, 2002, by Southern Services' district office located in Manassas, VA. The subject of the requested background check was listed as 'Robert Horne,' with no middle initial given. Horne's address was given, as well as his Social Security number and his birth date of '5/23/73.' The background check request was forwarded to MIS and Tammy White, an MIS employee, who began the investigation.

On April 2, 2002, White faxed a copy of the report that she had prepared concerning 'Robert Horne.' According to the report, MIS had performed three separate background searches concerning Horne. The first two searches were unremarkable in that they found only the prior criminal charges that Horne had already disclosed during his employment interview. The third search however, a review of criminal records in Montgomery County Circuit Court, disclosed additional information.

In the third report, Horne's prior criminal charges were identified, along with another criminal matter, which referred to a charge of theft resulting in a guilty finding and six months' jail time. A related conspiracy charged was dismissed by the prosecutor. No date of birth and no Social Security number connected Horne to this criminal conviction for theft.

The MIS criminal background report, nonetheless, communicated to Southern Services the unmistakable message that the subject of the inquiry, Horne, had been convicted and incarcerated for theft. There was no alert about the possibility of misidentification based on anything more than a common name.

The Problem

As it turned out, the Robert Horne who was convicted of theft had been sentenced for that crime in May 1986, when the other Robert Horne, who was working for Southern Services, was only 12 years old. White, the investigator for MIS, never bothered to note the disparity with the date of birth for Horne, the employee, with Horne, the convicted thief.

As one might expect, when the results of the background check were received by Southern States, Horne was fired from his job ' notwithstanding his protest that he had never been convicted of or incarcerated for theft, and that he was not the 'Robert Horne' who was listed on the criminal background report.

Thereafter, on April 11, 2003, Horne filed a complaint in the Circuit Court for Montgomery County, MD, alleging that he was defamed by MIS, Tammy White, and Southern States. Horne's claim against the three defendants went to trial before a jury in December 2005. At the close of Horne's case, the trial court dismissed Horne's claims against Southern Services. The claims against MIS and White, however, proceeded to verdict in which Horne was awarded damages.

The Appeal

The matter was appealed, and the Court of Special Appeals attempted to sort out the decisions by the trial court, as well as the jury. In so doing, the appellate court reviewed the law related to defamation and the defense of privilege. As the court noted, Southern States, as well as MIS and its employee, White, were entitled to a qualified or conditional privilege arising out of the employer-employee relationship. This would be true for MIS and White, even though they did not technically employ Horne because MIS and White had a common interest in the subject matter, i.e., performing a background check on Horne.

The court also noted, however, that Southern States, MIS and White enjoyed a conditional or qualified privilege, but that did not mean that they were immune from suit. Under Maryland law, as in many other states, the conditional privilege could be defeated if Horne could establish that there was actual malice involved in the publication of defamatory statement, i.e., that Horne was a convicted thief. According to the court, actual malice exists when the person making the false statement knew that either the statement was false or that it was almost certainly false, or had obvious reasons to distrust the accuracy of the statement.

With regard to White, the court had little difficulty in affirming the jury's verdict that she acted with reckless disregard for the truth when she prepared and sent the incorrect background check report to Southern States. As it turned out, White had no formal training to conduct background investigations or interpret the results. Moreover, White never bothered to inquire into the inconsistency between Robert Horne's birth date and the date when the other Robert Horne was convicted of theft.

The court found that the jury could reasonably find that White's blithe indifference to whether the subject of her inquiry had truly been convicted of theft was tantamount to 'reckless disregard' of the truth.

Regarding Southern Services, the appellate court found that although the company initially enjoyed a qualified privilege, the evidence at trial could have permitted the jury to find that Southern Services acted with sufficient actual malice to defeat the privilege.

Abuse of Privilege

Whether a privilege has been abused is usually a question of fact for the jury. In this case, contrary to the trial court's finding, the appellate court found that the actions of Southern Services were sufficiently abusive so as to defeat the conditional privilege. According to the trial testimony, Horne was told of his discharge by James Lambert, the local manager. Lambert apparently stated that Horne was being fired 'because he was a convicted thief.' Horne's discharge took place in an open office, in a public work area, in the presence and full hearing of at least three of Horne's fellow workers. During the discussion that followed, Horne denied that he had ever been convicted of theft, but Lambert continued stating that, 'you've done six months in prison, man.'

During this exchange, apparently other employees at Southern Services were standing around listening to the conversation. Lambert then volunteered to get the background check report to review it. After obtaining the Fax, Lambert showed it to Horne, again, in the presence of other co-workers and proclaimed, 'see, right there, right there, six months' jail time, right there, man,' and then continued, 'you're a convict, man.'

On those facts, the court held that the evidence was legally sufficient to generate a jury question as to whether the circumstances in which the defamation published by Southern Services was sufficiently abusive and excessive as to overcome its qualified privilege. Because the trial judge did not let the jury consider this issue, the case was remanded for retrial on that issue. Montgomery Investigative Services, Inc., et al. v. Robert T. Horne, No. 2849, September Term 2005, filed March 15, 2007.

Bottom Line

This case highlights the significant risk all employers face when they blindly rely on the criminal background reports provided by outside contractors. In this case, the report produced by MIS was clearly incorrect and neither MIS nor Southern Services ever stopped to consider that fact. As a result, both MIS and Southern States will have to accept a jury verdict as to the damages that they caused to Horne.

There are, however, certain things that a concerned employer could and should do to avoid being sued for defamation. First, the employer should retain qualified, trained and competent investigators to conduct the background checks and make sure that the reports that are produced are accurate. Here, there was clear evidence that a mistake had been made, but MIS did not take the time to consider it, nor did Southern States.

Second, employers should not blindly rely on the findings in the report when there is clear evidence to suggest that it might be incorrect. When presented with a report, Horne steadfastly proclaimed his innocence and Southern Services refused to consider his claim. While it is true that many who are guilty will deny that guilt, in this case, the employer should have taken a step back at least to reconfirm the findings in the report. If Southern States asked MIS to reconfirm its report, the error might have been detected and the lawsuit avoided.

Finally, whenever an employer is going to deliver 'bad news' to an employee, such as a termination for engaging in criminal misconduct, it is prudent to do it in the privacy of an office and not on the shop floor. Here, the Southern Services manager broadcast what proved to be a defamatory statement about an employee to the entire workforce. The fact that the manager was relying on the report from another entity, such as MIS, is no defense to a defamation claim. Had such a conversation taken place in the privacy of a closed office, the jury might very well have reached a different result.

Kevin C. McCormick, a member of this newsletter's Board of Editors, is a partner at Baltimore's Whiteford, Taylor & Preston.

Many employers routinely conduct background checks on applicants and employees to verify their prior employment history. Oftentimes, an outside service is used to obtain the critical information and then provide a brief analysis as to its significance.

However, as demonstrated in a decision from the Maryland Court of Special Appeals, both the employer and outside contractor can be sued for defamation if the search is not conducted properly and the employer, in reliance on that information, takes an adverse action against the individual, i.e., fires him or her. Let us take a closer look at how this problem developed.

Facts

A.A. Southern Services, Inc. (Southern Services) provides termite and pest control to residential homeowners. The technicians for Southern Services frequently had access to private homes at times when the homeowners were not present or at times when only a minor child was present. In order to protect its residential customers and reduce the risk of harm, Southern Services routinely requested criminal background checks on all of its technicians who would have access to residential homes. The checks were performed during the initial hiring process and annually thereafter.

Montgomery County Investigative Services, Ltd. (MIS) conducts various types of background checks for its clients. It conducts criminal, civil, traffic and Social Security inquiries, as well as hospital record checks. If requested, MIS will conduct a simple computerized search through a court database for a fixed fee per inquiry, and will provide the client with a summary, along with matching printouts. MIS will also conduct a more thorough investigation ' e.g., going to the courthouse to obtain copies of original documents from the court records, if requested.

Early in March 2002, Robert T. Horne applied for a job at Southern Services. During that interview, Horne was advised that he would have to undergo a background check as part of the employment process. Horne admitted that he had been previously arrested and charged with transporting a handgun and with impersonating a police officer. The second charge resulted in a verdict of not guilty. However, Horne pled guilty to the first charge of transporting a handgun and received probation before judgment.

On March 12, 2002, Horne was hired as a residential pest control technician. The routine background check on Horne was initiated on March 29, 2002, by Southern Services' district office located in Manassas, VA. The subject of the requested background check was listed as 'Robert Horne,' with no middle initial given. Horne's address was given, as well as his Social Security number and his birth date of '5/23/73.' The background check request was forwarded to MIS and Tammy White, an MIS employee, who began the investigation.

On April 2, 2002, White faxed a copy of the report that she had prepared concerning 'Robert Horne.' According to the report, MIS had performed three separate background searches concerning Horne. The first two searches were unremarkable in that they found only the prior criminal charges that Horne had already disclosed during his employment interview. The third search however, a review of criminal records in Montgomery County Circuit Court, disclosed additional information.

In the third report, Horne's prior criminal charges were identified, along with another criminal matter, which referred to a charge of theft resulting in a guilty finding and six months' jail time. A related conspiracy charged was dismissed by the prosecutor. No date of birth and no Social Security number connected Horne to this criminal conviction for theft.

The MIS criminal background report, nonetheless, communicated to Southern Services the unmistakable message that the subject of the inquiry, Horne, had been convicted and incarcerated for theft. There was no alert about the possibility of misidentification based on anything more than a common name.

The Problem

As it turned out, the Robert Horne who was convicted of theft had been sentenced for that crime in May 1986, when the other Robert Horne, who was working for Southern Services, was only 12 years old. White, the investigator for MIS, never bothered to note the disparity with the date of birth for Horne, the employee, with Horne, the convicted thief.

As one might expect, when the results of the background check were received by Southern States, Horne was fired from his job ' notwithstanding his protest that he had never been convicted of or incarcerated for theft, and that he was not the 'Robert Horne' who was listed on the criminal background report.

Thereafter, on April 11, 2003, Horne filed a complaint in the Circuit Court for Montgomery County, MD, alleging that he was defamed by MIS, Tammy White, and Southern States. Horne's claim against the three defendants went to trial before a jury in December 2005. At the close of Horne's case, the trial court dismissed Horne's claims against Southern Services. The claims against MIS and White, however, proceeded to verdict in which Horne was awarded damages.

The Appeal

The matter was appealed, and the Court of Special Appeals attempted to sort out the decisions by the trial court, as well as the jury. In so doing, the appellate court reviewed the law related to defamation and the defense of privilege. As the court noted, Southern States, as well as MIS and its employee, White, were entitled to a qualified or conditional privilege arising out of the employer-employee relationship. This would be true for MIS and White, even though they did not technically employ Horne because MIS and White had a common interest in the subject matter, i.e., performing a background check on Horne.

The court also noted, however, that Southern States, MIS and White enjoyed a conditional or qualified privilege, but that did not mean that they were immune from suit. Under Maryland law, as in many other states, the conditional privilege could be defeated if Horne could establish that there was actual malice involved in the publication of defamatory statement, i.e., that Horne was a convicted thief. According to the court, actual malice exists when the person making the false statement knew that either the statement was false or that it was almost certainly false, or had obvious reasons to distrust the accuracy of the statement.

With regard to White, the court had little difficulty in affirming the jury's verdict that she acted with reckless disregard for the truth when she prepared and sent the incorrect background check report to Southern States. As it turned out, White had no formal training to conduct background investigations or interpret the results. Moreover, White never bothered to inquire into the inconsistency between Robert Horne's birth date and the date when the other Robert Horne was convicted of theft.

The court found that the jury could reasonably find that White's blithe indifference to whether the subject of her inquiry had truly been convicted of theft was tantamount to 'reckless disregard' of the truth.

Regarding Southern Services, the appellate court found that although the company initially enjoyed a qualified privilege, the evidence at trial could have permitted the jury to find that Southern Services acted with sufficient actual malice to defeat the privilege.

Abuse of Privilege

Whether a privilege has been abused is usually a question of fact for the jury. In this case, contrary to the trial court's finding, the appellate court found that the actions of Southern Services were sufficiently abusive so as to defeat the conditional privilege. According to the trial testimony, Horne was told of his discharge by James Lambert, the local manager. Lambert apparently stated that Horne was being fired 'because he was a convicted thief.' Horne's discharge took place in an open office, in a public work area, in the presence and full hearing of at least three of Horne's fellow workers. During the discussion that followed, Horne denied that he had ever been convicted of theft, but Lambert continued stating that, 'you've done six months in prison, man.'

During this exchange, apparently other employees at Southern Services were standing around listening to the conversation. Lambert then volunteered to get the background check report to review it. After obtaining the Fax, Lambert showed it to Horne, again, in the presence of other co-workers and proclaimed, 'see, right there, right there, six months' jail time, right there, man,' and then continued, 'you're a convict, man.'

On those facts, the court held that the evidence was legally sufficient to generate a jury question as to whether the circumstances in which the defamation published by Southern Services was sufficiently abusive and excessive as to overcome its qualified privilege. Because the trial judge did not let the jury consider this issue, the case was remanded for retrial on that issue. Montgomery Investigative Services, Inc., et al. v. Robert T. Horne, No. 2849, September Term 2005, filed March 15, 2007.

Bottom Line

This case highlights the significant risk all employers face when they blindly rely on the criminal background reports provided by outside contractors. In this case, the report produced by MIS was clearly incorrect and neither MIS nor Southern Services ever stopped to consider that fact. As a result, both MIS and Southern States will have to accept a jury verdict as to the damages that they caused to Horne.

There are, however, certain things that a concerned employer could and should do to avoid being sued for defamation. First, the employer should retain qualified, trained and competent investigators to conduct the background checks and make sure that the reports that are produced are accurate. Here, there was clear evidence that a mistake had been made, but MIS did not take the time to consider it, nor did Southern States.

Second, employers should not blindly rely on the findings in the report when there is clear evidence to suggest that it might be incorrect. When presented with a report, Horne steadfastly proclaimed his innocence and Southern Services refused to consider his claim. While it is true that many who are guilty will deny that guilt, in this case, the employer should have taken a step back at least to reconfirm the findings in the report. If Southern States asked MIS to reconfirm its report, the error might have been detected and the lawsuit avoided.

Finally, whenever an employer is going to deliver 'bad news' to an employee, such as a termination for engaging in criminal misconduct, it is prudent to do it in the privacy of an office and not on the shop floor. Here, the Southern Services manager broadcast what proved to be a defamatory statement about an employee to the entire workforce. The fact that the manager was relying on the report from another entity, such as MIS, is no defense to a defamation claim. Had such a conversation taken place in the privacy of a closed office, the jury might very well have reached a different result.

Kevin C. McCormick, a member of this newsletter's Board of Editors, is a partner at Baltimore's Whiteford, Taylor & Preston.